Figure 15-5

-Refer to Figure 15-5.If the monopolist charges price P* for output Q*, in order to maximize profit or minimize loss in the short run, it should
A)continue to produce because price is greater than average variable cost.
B)shut down because price is greater than marginal cost.
C)shut down because price is less than average total cost.
D)continue to produce because a monopolist always earns a profit.

Question

Figure 15-5
 
-Refer to Figure 15-5.If the monopolist charges price P* for output Q*, in order to maximize profit or minimize loss in the short run, it should
A)continue to produce because price is greater than average variable cost. 
B)shut down because price is greater than marginal cost. 
C)shut down because price is less than average total cost. 
D)continue to produce because a monopolist always earns a profit.

Quizplus · Accepted Answer

In the short run, a monopolist should continue to produce as long as price is greater than average variable cost in order to minimize losses. In this case, P* is above the minimum point of the average variable cost curve (which is the shutdown point), so the monopolist should continue to produce at output level Q*.

Figure 15-5 -Refer to Figure 15-5.If the Monopolist Charges Price P* for Charges